Lawmakers silent on circular debt issue

KARACHI: The silence of lawmakers on the lingering circular debt issue was a main concern in the federal budget, said analysts on Monday.

The circular debt, currently hovering around Rs120 billion, affected dividend-paying ability of energy companies last year, said Topline Securities analyst Farhan Mahmood.

The government is expecting no dividends from Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL) for fiscal year 2010 in the face of this debt issue, the analyst said in his research report.

Every year the government reveals the dividends from its investment. Receipt of dividends varies year to year depending upon profits earned each year.

Dividend slashed

The government has revised down its dividend targets for energy companies, according to budget documents.

The overall dividend target has been cut by 15 per cent to Rs64.2 billion for fiscal year 2011 compared with Rs75.2 billion a year ago.

The major cut in dividend is witnessed in energy companies primarily due to circular debt liquidity constraints.

Energy companies contribute around 90 per cent of total dividend that the government receives from financial and non-financial institutions.

No broad-based plan

The budget lacked a broad-based plan to ensure growth, said BMA Capital analysts.

Inflation target of 9.5 per cent for fiscal year 2011 also seems ambitious, added the analysts.

Incentives extended to promote investment and equity market listing are commendable, they said.

Wide-scale opposition to implementation of Value Added Tax (VAT) forced the government to defer the decision, defeating the originally envisaged goal of increasing documentation in the economy.

The envisaged GDP growth target of 4.5 per cent for fiscal year 2011 will be widely dependent on recovery by commodity producing sectors for which power deficit remains a key challenge, said the analysts.

On the revenue side, a one per cent increase in general sales tax would be the supporting factor until the implementation of VAT, added the analysts.

Published in the Express Tribune, June 8^th, 2010.